Investor Glossary-futures optionInvestor Glossary-futures optionInvestor Glossary-futures optionInvestor Glossary-futures optionInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Futures Option

The HTML to link to this page
 

A futures option is an option on a futures contract. The futures option is common for both commodity futures such as wheat and coffee contracts and financial futures such as Japanese Yen and S&P 500 Index contracts. The key difference between a futures option and an option on a futures contract's underlying asset is delivery convenience. A futures contract for 1000 barrels of oil is much easier to deliver than the oil itself. Upon exercise of the futures option, the delivered futures contract is typically closed out immediately. The futures option is therefore typically settled entirely in cash. Cash settlement of the futures option appeals to investors with insufficient capital to purchase the underlying asset. The close coupling of futures and futures option markets facilitates hedging, speculation, and arbitrage, making the markets more efficient. Fischer Black developed a model to price the futures option in 1976.



Rate this futures option definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: stock market close, 1031 exchange, risk management, ex-dividend date, average price per share, Zero Cost Collar, 1035 exchange, implied volatility, option premium, inflation, debt service coverage, real GDP, phantom income, class C shares, labor relations, current ratio, covered put, irrevocable trust, annual return, ex-dividend, FICO score, APR, Key Rate Duration, margin rate, FTSE, command economy, LIBOR, 144a, stock split, open position, dividends payable, balance sheet, reverse mortgage, VIX, liquidity ratio, EBITDA, 401a, required rate of return, deferred revenue, diluted share, per diem, minority interest, in escrow, retained earnings, wholly-owned subsidiary, deferred tax, cancelled check, limit order, quality assurance


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use